Stadium financing gets a new game plan

The Downtown skyline and Heinz Field in the foreground with PNC Park behind, on the North Shore, as seen from the Spirit of Goodyear blimp in 2001.

By Michael Sanserino / Pittsburgh Post-Gazette

Pete Clarke has been a county commissioner in Florida for less than two years. Long before that, he had already grown tired of wealthy sports teams asking overextended taxpayers to subsidize their stadiums.

So when a semi-pro soccer team came to Orange County taxpayers last year asking for help building an $84 million stadium in Orlando, Mr. Clarke countered with a novel idea:

If the taxpayers make a significant investment in the team, they should get equity in the team in return.

The proposal -- which he sent in a memo to county Mayor Teresa Jacobs and his six fellow commissioners -- received a lot of attention. Sports website Deadspin called it "the best idea for stadium financing we've ever heard." Another called it a "new spin" on stadium financing.

"You get kind of tired of these folks coming to the trough so often," Mr. Clarke said in a phone interview last week.

The proposal ultimately died. The state constitution bars government entities from owning certain private enterprises, as it would in Pennsylvania. But Mr. Clarke believes the proposal -- and his stance that taxpayers get more from the investment -- helped convince the soccer club to commit to $200,000 in annual payments to the county in return for a $20 million investment, in addition to annual rent.

"The cost is outrageous," he said. "I would certainly like to look for a push to make it tougher for these folks to use tax dollars."

Pittsburgh and Allegheny County were not as demanding when they negotiated financing deals for Heinz Field and PNC Park. The city and county contributed $461 million toward the construction of the two stadiums that opened in 2001 -- all while owing more on Three Rivers Stadium ($40 million) than it initially cost to build ($35 million).

In return, each team has a lease with the Sports and Exhibition Authority, a joint venture of Pittsburgh and Allegheny County. The Pirates pay $100,000 annually to the SEA in addition to percentages of ticket revenue that exceed certain levels. The Steelers do not have a flat rent, but they pay portions of ticket sales and income from non-football events held at Heinz Field.

"The main thing to say about the leases is that we were able to achieve our main objectives with them, developing outstanding facilities, relieving the public of the day-to-day operating costs and securing long-term commitments of the teams," said SEA executive director Mary Conturo. "A lease negotiation is always a matter of give and take, and it's possible to imagine better terms."

But she said the SEA's leases with the teams compare favorably when compared to other agreements of the time.

The Steelers and Pirates retain most of the revenue generated at Heinz Field and PNC Park, including 100 percent of the naming rights -- $57 million for Heinz Field and $30 million for PNC Park. The Steelers contributed $76.5 million toward the $281 million Heinz Field price tag. The Pirates contributed $40 million toward PNC Park's $262 million construction.

The Steelers contend that tax payments to city, county and state governments are on track to more than pay back the public investment. Most economists, though, say that tax revenue would be realized regardless because entertainment dollars are fungible -- if people aren't spending their dollars at football stadiums, they are spending their money at restaurants and movie theaters.

"Such promotional studies overstate the economic impact of a facility because they confuse gross and net economic effects," economists Roger Noll and Andrew Zimbalist wrote in a 1997 report. "Most spending inside a stadium is a substitute for other local recreational spending, such as movies and restaurants. Similarly, most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall."

"They're just recirculating the same dollars," Mr. Clarke said. "Do families go to the movie or do they go to a soccer game?"

Pittsburgh and Allegheny County weren't alone. In the stadium construction boom that started in the 1990s, dozens of stadiums and arenas were built using mostly public dollars.

And public investment started long before that. A Deadspin analysis concluded that 186 professional football, baseball, basketball and hockey stadiums and arenas built in the Untied States between 1909 and 2012 were built with 61 percent public funding.

What was new about this trend that started in the '90s, however, is that the public return on the investments began to shrink. Rent payments dwindled while construction and capital maintenance costs skyrocketed, and teams dumped their old stadiums in favor of new ones with more revenue-producing opportunities, such as suites and high-tech scoreboards.

Yet the investments continued, partly because politicians did not want to be blamed when teams left town and partly because government officials wanted a project that conveyed progress.

"Local officials like building big shiny things they can point to. Slightly reducing kindergarten class sizes is harder to put a plaque on," said Neil deMause, who co-wrote the book "Field of Schemes," published in 1998, and operates FieldOfSchemes.com, which both deal with the dangers of public stadium financing.

Before he worked as a politician, Mr. Clarke watched the Orlando Magic basketball team tap taxpayers to build two stadiums, costing more than $500 million in public money.

"I do not want another example of the county expending millions of dollars and watching from the sidelines, as our investment climbs in value without the prospects of our taxpayers benefitting," Mr. Clarke wrote in his memo about the proposed soccer stadium.

His proposal caught the eye of many economists who have long argued taxpayers should seek more for their investments.

"I've been saying for a long time that the problem isn't public financing of stadiums," Mr. deMause said. "The problem is the public is putting up a lot of the money and the owners are getting all of the profits."

Economists also see issues with Mr. Clarke's proposal that would prevent taxpayers from owning teams in the future. Most North American leagues are quick to ban publicly owned franchises, with the famous exception of the Green Bay Packers, which have been publicly owned since 1923.

"Public ownership leads to the finances of the team becoming public information, and they don't want that," Mr. Noll, an economics professor emeritus at Stanford University, said in a phone interview last week.

Other states, as is the case with Florida and Pennsylvania, could prohibit such a public-private venture as well.

But the proposal is part of a larger movement among government entities to be more cautious when doling out funds that benefit sports teams.

Consol Energy Center was built late last decade using minimal public dollars -- in part because there was not much of a political appetite for another taxpayer-subsidized stadium. The Penguins still benefit from public assets, however, retaining exclusive development rights to the former Civic Arena site.

"The political pressure is changing," said J.C. Bradbury, an economics professor and department chair of exercise science and sports management at Kennesaw State University in Georgia. He has noticed that change near Atlanta, where the Braves are seeking to build a new baseball stadium and the Falcons are seeking to build a new football stadium.

"There has to be more of a national push to stop this foolishness," Mr. Clarke said. "To me, it's just foolishness. Let the owners build them. If the owners had half a billion tied up in an arena, how likely are they to leave? Not very likely."

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